$1 Barrel Tax Hike Would Cost Hawai‘i Residents, Businesses $22 Million Per Year

HONOLULU – Governor Linda Lingle today vetoed a bill that would cost Hawai‘i residents and businesses $22 million in new taxes every year on petroleum sold in the state. The bill, HB2421 HD2 SD2 CD1, would impose a $1.00 increase in the tax on each barrel of oil sold in the state.

The bill deceptively purports to use funds generated from the tax increase to promote energy and food security in the state, but in reality, over half of the money raised by the tax would be diverted for general government operations rather than reducing our dependence on imported oil and food.

The tax increase would raise the cost of living and increase the cost of doing business in the state by making virtually everything more expensive, including electricity, gasoline, trucking, shipping, retail goods, food, public and school buses, and even the propane for backyard barbeques.

“The impacts will ripple through our entire economy,” Governor Lingle said in a message to legislators detailing the reasons she vetoed the bill. “I am particularly concerned that the tax increase occurs at a precarious moment when the State economy is beginning to stabilize and progress out of the slump created by the global recession.”

The Governor is particularly concerned that poor families throughout the state would be hurt the most by the higher energy prices that would result from this tax increase since energy costs account for a higher percentage of the expenses for those at lower income levels.

In addition, there would a disproportionate impact on gasoline expenses for neighbor island residents, as well as those on O‘ahu’s leeward coast, the ‘Ewa and Kapolei areas, the North Shore and rural windward communities because they must commute over greater distances.

While one of the stated intents of the bill is to “establish a clean energy initiative to manage the state’s transition to a clean energy economy,” Governor Lingle noted that her Administration, in collaboration with the Legislature, federal government and community partners, has already made significant progress in this arena without the need for a regressive tax increase that would negatively impact every Hawai‘i resident and business and jeopardize our economic recovery.

The Governor vetoed a similar measure last year. One of her main concerns in that bill was the impact the barrel tax hike would have on aviation fuel for commercial airlines. Under this current bill, legislators were sympathetic to the plight of the airlines that are reeling due to the downturn in tourism and exempted aviation fuel from the barrel tax increase. However, the entire $22 million annual tax burden would now shift to every other business in the state and ultimately all Hawai‘i consumers who are struggling to cope with today’s economic challenges.